Sun Art Retail is targeting membership warehouse clubs. On April 28, Sun Art Retail's M Membership Store opened its first store in Yangzhou. On May 16, Sun Art Retail released its fiscal year 2023 financial results for the period ending March 31, 2023, stating it will continue to invest in M Membership Stores. Sun Art Retail's Executive Director and CEO Lin Xiaohai even said, "M Membership Store has just entered the membership track," and as a long-term investment for the future, it does not plan to be profitable within three years. In fiscal year 2024, Sun Art Retail will open three M Membership Stores. According to public information, Sun Art Retail is an investment holding company primarily engaged in hypermarket and e-commerce platform businesses in China, owning two well-known brands: Auchan and RT-Mart. However, in recent years, Sun Art Retail's performance has been mediocre, and times have been tough. Since 2017, Sun Art Retail's revenue has continued to decline. Data shows that in 2017, Sun Art Retail's annual revenue was 102.32 billion yuan (RMB, same below), but in 2018 and 2019, it was only 99.359 billion yuan and 95.357 billion yuan, respectively. Due to Alibaba's increased stake in Sun Art Retail in October 2020, completing its controlling interest, Sun Art Retail also changed its fiscal year-end from the calendar year to a fiscal year ending March 31. According to Sun Art Retail's financial reports, in fiscal years 2021, 2022, and 2023, Sun Art Retail's revenue was 93.086 billion yuan, 88.134 billion yuan, and 83.662 billion yuan, respectively. Data source: Sun Art Retail financial reports; chart by Ranch Moment. Over the past six years, Sun Art Retail's revenue has shown a continuous decline. Additionally, in fiscal year 2022, Sun Art Retail recorded its first loss since its listing in 2011, and also its largest loss—a loss of 826 million yuan. The just-released fiscal year 2023 results show that Sun Art Retail achieved a profit of 78 million yuan. However, the quality of this profit has been questioned as "financial maneuvering," given that in fiscal year 2023, Sun Art Retail's two main revenue sources—sales of goods revenue fell 4.8% year-on-year, and rental income fell 11.6% year-on-year. The turnaround to profitability seems more attributable to "cost reduction and efficiency enhancement." The financial report shows that as of March 31, 2023, Sun Art Retail had 107,785 employees, a decrease of 14,225 people, accompanied by a reduction in employee benefit expenses of 317 million yuan. For the future, Sun Art Retail stated in its fiscal year 2023 report that in fiscal year 2024, the group will focus more on target customers with offline rigid demand, while continuing to invest in the exploration and development of multiple business formats, including the polishing of M Membership Stores, the expansion of Zhongrunfa, and the exploration of Xiaorunfa, to create a second growth curve. But can targeting membership clubs save Sun Art Retail? The answer is not necessarily. Moreover, in the membership club field, Sun Art Retail's "benchmarking" against Sam's Club is evident. Guang Guang, who visited the M Membership Store a few days after its opening, told Ranch Moment, "The M Membership Store is simply an RT-Mart version of Sam's Club, from membership fees to products, it's very similar to Sam's." On social media platforms, many local consumers in Yangzhou have also criticized the store for being "copycat" or "imitative." The warehouse membership club track is already a "red ocean," with brands such as Sam's Club, Costco, Hema, fudi, Metro China, and Guoshuhao all present, trying to get a share. In response to the "sneak attack" of M Membership Store, Sam's Club has begun to counter. Half a month after M Membership Store appeared in Yangzhou, Sam's Club launched fresh food direct delivery notifications for some areas of Yangzhou. On May 16, Ranch Moment browsed the Sam's Club app and found it had also released a "Notice on Expanding Fresh Food Direct Delivery in Yangzhou." Image: Sam's Club's notice on launching fresh food direct delivery in some areas of Yangzhou /Sam's Club app; screenshot by Ranch Moment. Some consumers added in the comments section of related posts that previously, Sam's Club products could be ordered online in Yangzhou, but only non-fresh items. Another netizen joked on Xiaohongshu, "This is to compete with M Membership Store" and "Thanks to M Membership Store, let the competition begin." Sun Art Retail's attempt to break through with warehouse membership clubs is not an easy battle. M Membership Store lands in Yangzhou On April 28, after nearly a year of renovation, Sun Art Retail's first paid membership store—M Membership Store—finally opened its doors. It is understood that the M Membership Store is located in an independent commercial building complex, which had undergone a transformation from an Auchan supermarket to an RT-Mart Jiangyang store, and then to the M Membership Store. Sun Art Retail "radically transformed" its own hypermarket to squeeze into the warehouse membership club model. Guang Guang is a Sam's Club enthusiast. Before the M Membership Store opened, she often drove with her family to Sam's Club in Changzhou or Nanjing during holidays for big shopping trips. After the M Membership Store opened, Guang Guang embraced it because "M Membership Store is closer and more convenient." On the opening day, Guang Guang planned to experience it, but the crowd exceeded her expectations. She, who had been looking forward to a warehouse membership club, couldn't even get in. "On the first day, it was a weekday. I went at around 9 a.m., hoping to avoid the crowd, but I was stuck at the traffic light at the entrance for 5 minutes." So, after driving around the parking lot and finding no suitable spot, she "turned back." A few days later, Guang Guang went to the M Membership Store again and spent over 1,500 yuan. But after this experience, Guang Guang felt that the M Membership Store was more like an "RT-Mart version of Sam's Club," from membership fees to products, exuding a strong Sam's Club vibe. First, in terms of membership fee settings. The M Membership Store divides membership fees into two tiers: the gold membership card costs 680 yuan/year, and the regular membership card costs 260 yuan/year, the same as Sam's Club. Source: Visual China. Guang Guang also told Ranch Moment that the staff who promoted membership cards to her emphasized, "Don't worry, the products inside are priced according to Sam's Club, at par or even lower." Ranch Moment also noticed that some M Membership Store employees promoting membership cards on Xiaohongshu also mentioned the keyword "benchmarking Sam's Club." On the product side, Guang Guang also felt the M Membership Store's "benchmarking" against Sam's Club. She found that from cheese beef rolls, mochi, Swiss rolls to roast chicken, all of Sam's Club's bestsellers were available at M Membership Store. "Although I don't mind the so-called 'copycat' products, because bestsellers can't be monopolized by one company," she said. "But at least that day, I only found imitation, and didn't feel any unique highlights of its own." Guang Guang said bluntly. Ranch Moment noticed that M Membership Store claims its private-label products account for more than 10%, but at this stage, the products with high discussion are not exclusive to M Membership Store. It lacks one or even several exclusive, distinctive, and characteristic bestsellers, and has not demonstrated a continuous ability to create bestsellers. Moreover, multiple consumers pointed out to Ranch Moment, "It feels like RT-Mart supermarket products have just been moved to a different place to sell," reflecting that the quality control of M Membership Store still has room for improvement. "Costco, Sam's Club, and others explored warehouse membership supermarkets earlier and are relatively successful cases, which is indeed an important reason for current retail companies to enter the warehouse membership supermarket business. So referencing successful cases is very common," new retail expert Bao Yuezhong analyzed to Ranch Moment. 'Benchmarking' becomes a 'substitute' in consumers' minds 'Yangzhou Sam's Club' has indeed helped M Membership Store win over some former Sam's Club consumers. After all, there is no Sam's Club in Yangzhou yet. The target customers of warehouse membership stores are generally middle-class, car-owning families. Based on this, most warehouse membership stores' first stores are concentrated in first-tier cities like Beijing, Shanghai, Guangzhou, and Shenzhen. Even with subsequent expansion, first-tier and new first-tier cities remain the first choice. However, as competition in the warehouse membership supermarket sector intensifies, warehouse membership stores in first-tier and new first-tier cities are also becoming somewhat crowded. According to incomplete statistics from Ranch Moment, Beijing has four Sam's Club stores, three fudi stores, and one Hema X Membership Store; while Shanghai is almost the first choice for warehouse membership players testing the waters in mainland China. Therefore, choosing to place the first store in the third-tier city of Yangzhou may be because Sun Art Retail saw the continuous "involution" in the warehouse membership track and planned from the start to avoid the main battlefield of competition. Of course, Yangzhou's purchasing power should not be underestimated. Public data shows that in 2022, Yangzhou's GDP was 710.498 billion yuan; the per capita disposable income of all residents was 44,828 yuan, a year-on-year increase of 6%; per capita consumption expenditure was 27,581 yuan, a year-on-year increase of 5.7%. Moreover, after years of layout, RT-Mart also has a certain user base in Yangzhou. As Guang Guang, a local Yangzhou resident, put it, "RT-Mart has almost penetrated the lives of many Yangzhou people." "Just as Sam's Club can use Walmart shopping cards, M Membership Store can also use RT-Mart shopping cards, which immediately narrows the distance with local residents. After all, many units in Yangzhou distribute RT-Mart shopping cards as benefits to employees," Guang Guang introduced. Yangzhou residents have consumption demand for warehouse membership stores and strong purchasing power. Coupled with RT-Mart's established user base in Yangzhou, to some extent, Yangzhou has become an inevitable choice for Sun Art Retail to lay out membership stores. Currently, M Membership Store's strategy is working to some extent. As Lin Shuang, who regards M Membership Store as a "substitute," said, "I am also a Sam's Club member, but there is no Sam's Club in Yangzhou. M Membership Store is close to home, so it's my first choice for buying fresh produce, salads, and other products." However, imitating predecessors and replicating bestsellers may indeed achieve short-term traffic diversion, but it is by no means a long-term solution. "No matter what business format a retail enterprise develops, the most critical thing is to do a good job with products. Create characteristics and advantages. If the product itself lacks core competitiveness, whether it adopts a membership model or a hypermarket model, it will ultimately be difficult to succeed," Bao Yuezhong said. Sun Art Retail's supermarket dilemma M Membership Store, Zhongrunfa, Xiaorunfa—Sun Art Retail is actively trying multiple business formats, which reflects the helpless dilemma of RT-Mart and many supermarkets and hypermarkets. In recent years, chain supermarkets have been in a cold snap that is difficult to dissipate in the short term. The development of traditional e-commerce has replaced some consumers' demand for offline supermarket shopping, leading to a serious loss of customer traffic in traditional offline supermarkets. In addition, fresh food e-commerce platforms such as Meituan Maicai and Dingdong Maicai are also aggressive, providing services like instant delivery and one-hour delivery, and have evolved new formats around retail, such as community group buying and live-streaming e-commerce, further weakening consumers' dependence on offline supermarkets. More convenient and cheaper online shopping methods have directly made "shopping at offline supermarkets" a non-essential option. The order established by traditional chain supermarket giants has been gradually deconstructed, making them collectively struggle. Even Carrefour, the former retail giant, is accelerating its decline. Around the Spring Festival in 2023, many Carrefour stores saw large areas of empty shelves, some products could not be settled with shopping cards, and there were reports of supplier supply disruptions due to unpaid debts. Subsequently, Carrefour also experienced a rare "sea of people," but these customers were not there to support the store but to "clear their cards." Another chain supermarket, Yonghui Superstores, is also not optimistic. It accumulated losses of 6.7 billion yuan in 2021 and 2022. In 2022, it opened 36 new Bravo stores, but closed 60 stores of the same format. The total number of supermarket stores was 1,033, far from the peak of 1,440. According to media reports, from early February to the end of March this year, a total of 7 supermarkets closed, including 3 Walmart stores, and one each from Yonghui, Carrefour, and China Resources Vanguard. Looking at a longer timeline, the China Chain Store & Franchise Association's "2022 Supermarket Business Survey Report" also showed that in 2022, sample enterprises opened 621 new supermarket stores and closed 873 stores, a net decrease of 252 stores. For Sun Art Retail, the situation is also not optimistic. Sun Art Retail's fiscal year 2023 report shows that in the 12 months ending March 31, 2023, Sun Art Retail reduced its hypermarket count by 4 and small supermarkets by 19. In addition, Sun Art Retail disclosed in its fiscal year 2022 report that during the reporting period, the group closed 5 hypermarkets. To survive and keep up with the times, Sun Art Retail began its digital transformation in 2017 when it cooperated with Alibaba. In July of that year, the "RT-Mart Youxian" app was launched, and five months later, all RT-Mart stores nationwide had online business. In subsequent years, Sun Art Retail fully urged RT-Mart to lay out online channels, adding various fulfillment models and pre-sale projects such as one-hour delivery, half-day delivery, and next-day delivery. Around its core business, the RT-Mart hypermarket, Sun Art Retail also launched two new formats: Zhongrunfa and Xiaorunfa. Zhongrunfa is positioned as a medium-sized supermarket, while Xiaorunfa focuses on "chain community fresh food supermarkets." Sun Art Retail once explained that Zhongrunfa is a low-cost extension of RT-Mart, focusing more on core categories and product upgrades, improving product efficiency, and reducing operating and investment costs. For Xiaorunfa, Sun Art Retail's 2022 interim report stated that it would continue to polish the business model of community small stores. However, the results of these efforts vary. The actual expansion of Xiaorunfa is somewhat "skeletal." In absolute numbers, in fiscal year 2023, the number of Xiaorunfa stores decreased by 19, but the financial report disclosed that during the reporting period, Xiaorunfa closed 40 stores, and its headquarters was further optimized into a minimalist organization, focusing on the Nantong region. Zhongrunfa may bear greater responsibility in the future. The financial report mentioned that the comparable store gross cash flow of Zhongrunfa continued to improve during the fiscal year, and the group will continue to invest in the national layout of Zhongrunfa. In addition, on social media platforms, many consumers have questioned whether the two are "copycat" versions of RT-Mart. Although RT-Mart itself responded by "playing along with the meme," saying "This is my child," it also means that it will take time for the general public to fully accept Zhongrunfa and Xiaorunfa. Weak performance, a stock price in need of revival, and new formats with unclear prospects all force Sun Art Retail to continue testing the warehouse membership club format. But it is clear that, at least for now, consumers still believe that Sun Art Retail's attempts in warehouse membership clubs still need polishing. After several shopping trips, Lin Shuang first thought that the M Membership Store's "roast chicken was too dry" and she "would not buy it again," and then found that the bakery products at M Membership Store also did not meet expectations. Image: Some products Lin Shuang purchased at M Membership Store /Provided by Lin Shuang. Xu Min, after repurchasing blueberries several times, also found quality control issues. In addition, she complained to Ranch Moment that the durian used for low-price traffic was suspected of hunger marketing. "Every time I go, either there's a long line or it's sold out." "After all, I paid a 260-yuan membership fee to get in. Such quality control and consumption experience make me feel there's not much difference between it and an ordinary supermarket," Xu Min told Ranch Moment. Is the warehouse membership club a "panacea"? Beyond a series of measures that fell short of expectations, the warehouse membership club track that Sun Art Retail is betting on also has both flowers and thorns. Now, warehouse membership clubs have clearly become the main trend in retail format development, and the potential of this model is also reflected in data. According to iiMedia Research data, the market size of China's warehouse membership supermarket industry reached 30.43 billion yuan in 2021, and it is expected to reach 38.78 billion yuan in 2024. When the industry as a whole is on the rise, brands compete not only in the number of stores but also in products, each quietly competing. It's not about who is the most competitive, but who is more competitive. Under the trend, foreign retail giants have been accelerating their layout. Recently, Sam's Club announced the official opening of its 43rd store in China in the Zhenru sub-center of Putuo District, Shanghai. It is expected that six new Sam's Club stores will open nationwide this year, bringing the total to 48 by the end of the year. Another warehouse membership brand, Costco, also plans to enter Ningbo, Hangzhou, and Shenzhen in 2023, opening three more stores, with a total of four new stores this year, and is expected to open a store in Nanjing in 2024. Local warehouse membership stores are also working hard, and at least so far, their results are impressive. As of March 2023, Hema, also under Alibaba, said it had opened 9 X Membership Stores in China, with nearly 3 million paid users. Another local warehouse membership supermarket brand, fudi, announced at the end of 2022 that it would continue to accelerate store expansion in 2023, opening 8-15 membership stores in Beijing. Metro China, which was "sold" to Wumart, also "re-embraced" the warehouse membership club model long ago. As of January 2023, Metro had opened 24 membership stores, and it also announced that its new and old stores in China would gradually be presented to consumers in the form of "paid membership stores." It is also worth mentioning that in March this year, the premium fresh supermarket Guoshuhao announced that it would fully transform its 13 supermarkets into paid membership stores, and said that to subsidize members, almost 90% of product prices would be directly reduced by 20%, competing for consumers from the price end. To attract more consumers, Guoshuhao also announced that even if consumers do not join the membership system, they can enter the supermarket and buy products at original prices. The influx of new and old players makes the warehouse membership track particularly lively, but this means competition is becoming increasingly fierce. Even the lower-tier market that Sun Art Retail wants to bypass has become a piece of fat in the eyes of entrants. Sam's Club, the model that M Membership Store imitates, has already laid out in second-tier cities such as Nantong, Nanning, Wuxi, and Changsha. According to media reports, Sam's Club has signed contracts for stores in Dongguan Liaobu, Jiaxing Jingkai, Shaoxing Yuecheng, Jinan Lixia, Wenzhou Lucheng, and Jinjiang Chidian, showing a gradual trend of sinking. Behind the fierce competition and lively scenes, there is also huge uncertainty—the warehouse membership club model is not a perfect path that everyone can copy and follow. Carrefour China, which entered the warehouse membership model, has already "hit a wall." In April this year, Carrefour China closed two membership stores in Shanghai: Chengshan Road and Zhongshan Park, with the Chengshan Road store being Carrefour's first membership store. Currently, only two of the four membership stores Carrefour China opened in Shanghai remain. In fact, as early as 2021, when Carrefour's first membership store opened, it encountered some suppliers who said they would no longer cooperate, and on the opening day, there was a direct problem of competitors pressuring suppliers to buy out related products. Ranch Moment also found on Xiaohongshu that recently, some consumers who visited the Qingpu Carrefour membership store posted, "Even on weekend afternoons, there are very few people." In Yangzhou, Metro's exploration of the warehouse membership model is also somewhat awkward. Ranch Moment noticed that before the M Membership Store landed, the only warehouse membership store in Yangzhou was Metro's Hanjiang Mall store. Image: Metro (Hanjiang Mall store) China Chain Store & Franchise Association. The title image and some in-text images are from Visual China. Guang Guang, Lin Shuang, and Xu Min are pseudonyms. Disclaimer: Under no circumstances does the information or opinions expressed in this article constitute investment advice to anyone.